A general resource for employees and management alike, covering issues old and new in the law of Ontario employment relationships.

Wednesday, September 4, 2013

Resigning and claiming your bonus

One of my most-viewed posts of all time was "How to Quit Your Job", in which, among other things, I cautioned resigning employees that it's better - where possible - to wait until they have their bonus cheque in hand before putting in their resignation letter.

I've been asked before: I want to put in my notice at the start of the month, but there's a big bonus coming up partway through the month. Am I still entitled to it? That's a nuanced area of law, and the answer is always going to be "maybe", perhaps weighted more to one side or another, and so, if you can avoid it, don't take the chance. Wait, if possible, until after you have the cheque before you put in your notice. Even if you are entitled to it either way, it's still better to have it first than to have to fight for it.

There's a recent decision from the Small Claims Court dealing with an employee who quit six weeks before his previous year's bonus was to be paid. The case is Patterson v. Hanson Hardscape Products Inc., decided by Kitchener's Deputy Judge Winny (who is not specifically an employment lawyer, but is no stranger to employment law cases, on both sides of the bench), and litigated by two intermediate-level lawyers from boutique employment law firms.

Part of Patterson's remuneration included an annual bonus, payable in mid-March in respect of the previous year. The employer's bonus policy stated that the bonus was only payable if he was an 'active employee' as at the bonus payment date. Unfortunately, Patterson didn't realize that, and so when he resigned in early February of 2012, he was shocked when the employer refused to pay his 2012 bonus, worth just under $24,000.

The issue at trial was whether or not the employer had adequately communicated the restriction on bonus eligibility to Patterson: The employer relied on a pair of emails which had been sent by an employee in the employer's Texas office who Patterson didn't know, attaching the terms of the bonus plan. Neither email had any text, neither email identified the position of the sender, neither email indicated the significance of the attachment or gave any instructions relating thereto; they were just mass-mailings with nothing beyond an attachment, in amongst the hundred emails per day Patterson generally received. The Deputy Judge found that Patterson was not aware of the contents of the policy, and therefore could not be held to the restrictions on eligibility.

Actually, the Deputy Judge went a step further, and appeared to conclude that it was reasonable that Patterson didn't know about the policy, reasonable that he didn't prioritize the no-text email from someone he didn't know over his other hundred emails per day.

I accept that the defendant attempted to communicate the limiting terms of the bonus policy to the plaintiff’s attention by means of these two emails. But I find that it failed in that attempt because the combination of the method and manner of the putative communication rendered it ineffective. In the absence of contractual terms providing otherwise, responsibility for such ineffective communication lies with the sender.

Patterson did, however, have actual discussions with his superiors about the bonus, focusing on the targets to be achieved to be eligible for the bonus. There was no discussion of the policy or the limitations in the policy. This, fundamentally, is why a contractual entitlement can vest: He knew that he was eligible to earn a bonus if he met certain targets; he worked to achieve those targets, and succeeded; then he's told that he doesn't get a bonus because he stepped awry of a provision in the policy he didn't know about? That would be nonsense.

So Patterson won the bonus. And got costs, too. But I'm surprised by how modest the costs award was.

Early in the process, Patterson offered to settle for a little over half the amount of the amount he was awarded. The fact that he did better than his settlement offer means that there's an ostensible doubling of his cost entitlement. Plaintiff's counsel sought a reasonable representation fee of $3750, doubled to $7500, plus disbursements of $505. To me, this makes sense. The case law is reasonably clear at this point that the face-value reasonable representation fee can be doubled, and $3750, for a mid-level lawyer to argue a full-day trial, seems pretty conservative to me.

However, the Deputy Judge concluded that a reasonable representation fee was only $1500. So he doubled that and added the disbursements, for an overall costs award of only $3505, all-inclusive.

Strictly, the representation fee can likely be interpreted to apply only to the hearing and hearing prep, though. Rule of thumb: Each day of hearing takes approximately 1.5-2 days of prep. This being Kitchener and an intermediate level lawyer, if you assumed a very conservative billing rate of $200 per hour plus HST, then a day-long trial and 1.5 days of prep would be over $4500 (this does not include documentary disclosure and review, settlement conferences, preparing and reviewing pleadings, initial fact-gathering and provision of opinions...the actual hearing is just the tip of the iceberg of legal fees) - so even on a partial indemnity calculation that should come reasonably to $2800.

Lesson for Employers
When you implement a new policy, or apply an existing policy to a new employee, you need to give the policy to the employee, give them an opportunity to read it, and have them sign an acknowledgement of having received it and having read and understood it. I can provide assistance with this process if necessary.

Lesson for Employees
This issue can be fact-specific. The fact that Patterson won...doesn't necessarily mean that you will. The fact that you don't know the details of your bonus policy isn't necessarily going to protect your entitlement to a bonus.

And as much as this is a win for Patterson, it's still probably not as good as if he'd just stuck it out a few more weeks: He gets his bonus, plus $3505 in costs, but he presumably had to pay a lot more than that to get that result. And it took a year and a half to get judgment.

So, wherever it's an option, if there's an important bonus date coming up, hold your resignation letter until you get the cheque.

Food for Thought: What happens if you give notice that carries you past the bonus date, but the employer waives the notice earlier?
This is conceivable: Let's say your bonus is paid on June 1. On May 18, you give two weeks' notice. Your employer then sends you home, and takes the position that, because you weren't actively employed on June 1, you don't get your bonus.

It could well depend on the terms of the contract, and certainly on the specific circumstances, but it would be a difficult argument to make for the employer. The trouble is that an employer would often be ill-advised to take the position that waiving notice actually terminates the employment relationship, because that may trigger additional obligations for the employer.

Nonetheless, I stand by my quotation from my earlier entry: Even if you are entitled to it either way, it's still better to have it first than to have to fight for it.

Additional Thoughts: Is 'active employment' language often void?
This is a thought I've toyed with in a couple of prior entries, such as this one. It has been held that a bonus which is payable during the statutory notice period, following termination of employment, is payable regardless of 'active employment' language. I think it's a very small stretch from there to say that language purporting to disentitle an employee to a bonus under those circumstances is void ab initio, regardless of the actual circumstances under which employment ends.

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This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.